Monday, 28 November 2011

SABAM/Scarlet meets Newzbin2 – but will they play nicely together?

It is not just what it says, but the way that it says it.By the standards of ECJ judgments it is unusually forthright:IP rights are not absolutely protected or inviolable, but have to be balanced against other fundamental rights - not just as a matter of form but in substance. It is not enough to pay lip service to rights of privacy, freedom of expression and (the new kid on the block) freedom to conduct a business.

The ECJ has stated in the plainest terms that these rights have real substance and can trump overreaching IP rights.Moreover, the ECJ has given real teeth to the prohibition on general monitoring obligations in Art 15 of the ECommerce Directive.

SABAM/Scarlet comes hot on the heels of Mr Justice Arnold’s second judgment in Newzbin2.There are important factual differences between the cases.SABAM/Scarlet is about content filtering, whereas Newzbin2 is about site blocking.But there are also parallels.Both concerned conduit ISPs.Both involved the use of DPI (deep packet inspection) technology, albeit in very different ways.Both required the court to balance the various fundamental rights at stake.How does Mr Justice Arnold’s approach now stack up against that of the ECJ?

General monitoring obligations

Article 15 of the ECommerce Directive prohibits national authorities (which includes courts)from adopting measures that would require an ISP to carry out general monitoring of the information that it transmits on its network.In L’Oreal v eBay the ECJ held that this applies to measures that would require an online intermediary, such as an ISP, to actively monitor all of the data of each of its customers in order to prevent any future infringement of intellectual property rights.

The filtering system at issue in SABAM/Scarlet would require an ISP:

1.to identify, within all of the electronic communications of all its customers, files relating to peer-to-peer traffic;

2.to identify, within that traffic, files containing works in which rightsholders claimed to hold rights;

3.to determine which of those files were being shared unlawfully; and

4.to block file sharing that it considered to be unlawful.

This involved a cascade of deeper and deeper dives into transmitted packets in order to determine their nature and contents. In the words of the ECJ:

“Preventive monitoring of this kind would thus require active observation of all electronic communications conducted on the network of the ISP concerned and, consequently, would encompass all information to be transmitted and all customers using that network.”

How does Newzbin2 sit with this?The system of site blocking that the court required BT to employ was a two stage process: first, redirection based on IP addresses, then the redirected traffic would be analysed at the URL level.

Although this would use DPI technology, in his original judgment Arnold J had taken care to distinguish between three levels of packet inspection, which he described as (i) a minimal analysis; (ii) summary analysis (iii) detailed, invasive analysis of the contents of a data packet.The order against BT requires it to use:

“DPI-based URL blocking utilising at least summary analysis in respect of each and every URL… .

2. For the avoidance of doubt paragraph 1 … does not require the Respondent to adopt DPI-based URL blocking utilising detailed analysis.”

Arnold J commented:

“The order sought by the Studios does not require BT to engage in active monitoring of the kind described by the Court of Justice [in L’Oreal v eBay] at [139], but simply to block (or at least impede) access to the Newzbin2 website by automated means that do not involve detailed inspection of the data of any of BT's subscribers. To the extent that this amounts to monitoring, it is specific rather than general.

It is clear from SABAM/Scarlet that (a) the fact that the deepest inspection is carried out only on some preselected traffic does not prevent there being a violation of Article 15 and (b) the deeper the dive into the packets, the greater the likelihood that Article 15 will be contravened.

It is also evident that Arnold J was alive to these issues.However because the Newzbin2 judgment gives no further detail as to the difference between minimal, summary and detailed DPI analysis it is unclear exactly what level of packet inspection is involved and whether SABAM/Scarlet would have had any impact on that.

Arnold J went on to say:

“Furthermore, it would be imposed by a case-specific order made under national legislation which implements Article 8(3) of the Information Society Directive.”

However that, in the light of SABAM/Scarlet, is not an answer to a potential violation of Article 15.

Fundamental rights

Much of the fundamental rights analysis in SABAM/Scarlet and Newzbin2 is similar.Both balanced the rightsholders’ IP rights against freedom of expression.Both recognised that the risk of preventing access to lawful content through overblocking or overfiltering is a relevant factor to take into account.

However SABAM/Scarlet not only placed heavy emphasis on the fact that IP rights are neither absolutely protectable nor inviolable, but also introduced some new elements.

The biggest contrast with Newzbin2 is in the ECJ’s reliance on the fundamental freedom of ISPs to conduct their businesses.This is now enshrined in Art 16 of the EU Charter of Fundamental Rights: “The freedom to conduct a business in accordance with Community law and national laws and practices is recognised.”

The ECJ held that the injunction in issue would be a serious infringement of the freedom of the ISP concerned to conduct its business since it would require that ISP to install a complicated, costly, permanent computer system at its own expense.

On the facts this differed from Newzbin2, in which Arnold J held that the costs of implementing the injunction were modest. But he also said this:

“The Studios are enforcing their legal and proprietary rights as copyright owners and exclusive licensees, and more specifically their right to relief under Article 8(3). BT is a commercial enterprise which makes a profit from the provision of the services which the operators and users of Newzbin2 use to infringe the Studios' copyright. As such, the costs of implementing the order can be regarded as a cost of carrying on that business.”

Even before SABAM/Scarlet, this passage looked a bit lopsided.The Studios also are commercial enterprises which make a profit from exploiting their legal and proprietary rights as copyright owners and exclusive licensees.As such the costs of protecting and enforcing those rights, including implementing this order, could just as easily be regarded as a cost of carrying on that business. In any event now, after SABAM/Scarlet, it will not be possible to elevate rights owners above mere commercial enterprises.They both have fundamental rights which have to be balanced.

One point which SABAM/Scarlet leaves open is how the balance between competing fundamental rights is to be drawn if the costs burden of complying with an injunction is shifted to the rightsholder.It could be argued that even if the compliance burden could be fully compensated by cost-shifting, an excessive burden is damaging to the interests of the internal market and consumers generally, whichever party bears it.In any event cost-shifting cannot reduce any impact on the freedom of expression rights of ISP customers, which the ECJ emphasised, or affect violation of Art 15 of the ECommerce Directive.

The ECJ also noted a cross-border issue which is potentially of great importance when considering whether an injunction could result in overblocking and thus interfere with the freedom of expression rights of the ISP’s customers.The court said:

“it is not contested that the reply to the question whether a transmission is lawful also depends on the application of statutory exceptions to copyright which vary from one MemberState to another. Moreover, in some Member States certain works fall within the public domain or can be posted online free of charge by the authors concerned.”

The discussion in Newzbin2 was entirely domestic, predicated on infringements of UK copyright.It now appears that future cases will have to take cross-border issues into account, at least where an ISP has customers in more than one EU country.

Please Note

The views expressed in this blog are the personal views of Graham Smith alone and are not attributable to the law firm for which he works or to any of its clients. Nothing in this blog constitutes legal advice. Always take advice from a suitably qualified legal practitioner in relation to a specific matter.